Even in today's electronic world, many coupons and retail promotions are still printed on paper and distributed to customers through various forms of print media such as newspapers, magazines or direct mailings. It is estimated that manufacturers spend approximately $3 billion dollars each year just to distribute coupons nationwide. However, current coupon distribution or redemption schemes are only marginally effective because (1) numerous activities must be conducted before a coupon is redeemed, (2) use of coupons simply as a cash instrument and marketing tool ignores the value of customer profile information and buying habits of the customer, and (3) clearing of the coupon is performed manually.
In order to redeem a paper coupon, a customer needs to remove the paper coupon from its printed media and store the coupon for future use. Hopefully, at a later time, the customer remembers to take the paper coupon to the store for redemption. Once the coupon is accepted by the retailer, it is normally cleared manually by two different coupon clearing companies, namely a “manufacturers' clearing agent” and “retailers' clearing agent”.
In general, a retail store typically collects all paper coupons redeemed by customers and sends them to a retailers' clearing agent. The retailers' clearing agent manually sorts paper coupons by those manufacturers' clearing agents that represent particular manufacturers. The retailers' clearing agent summarizes the information in a report and generates an invoice showing the face value of coupon and their “standard handling fees.” The report and invoice are then sent to the respective manufacturers' clearing agent.
The manufacturers' clearing agent manually sorts the paper coupons by respective manufacturers and summarizes coupon redemption information in a report by product line, region, retail store, etc. The manufacturers' clearing agent shreds all accepted paper coupons and generates an invoice showing the face value of coupons, coupon handling, clearing and all other processing charges. The manufacturers' clearing agent also collects the invoice amount from manufacturers and pays the retailers' clearing agent and/or the retail store.
The current paper coupon clearing process is primarily a manual system with a number of disadvantages. For example, this process is time intensive. Under the current system, coupon clearing takes an average of 3–12 weeks from the point of redemption by customers to retailer reimbursement. It also takes approximately 3–9 months to receive any kind of feedback about the progress and results of a coupon campaign.
Another disadvantage associated with the current paper coupon clearing process is that it is labor intensive and costly. After being redeemed by a customer, a coupon goes through three different stages in clearing. This presents a financial burden for both manufacturers and retailers due to the amount of labor and time involved in handling and auditing the coupon process. It is estimated that a total of $1.5 billion per year in fees are paid to clearing agents by manufacturers.
Yet another disadvantage associated with the current paper coupon redemption and clearing process is that retailers and manufacturers incur substantial annual costs due to fraud and redemption errors (e.g., accepting expired coupons), charge backs, deductions and adjustments. It is estimated that manufacturers and retailers lose an estimated $500 million dollars per year due to redemption errors. Redemption errors occur primarily because Point of Sale (POS) systems do not validate the complete coupon barcode in real time. Most POS systems today validate only the manufacturer codes and some POS systems may validate both manufacturer codes and family codes. No POS systems validate the entire coupon barcode.
Under the current system, retail stores distribute magnetic media and/or barcode based plastic cards to store customers to identify their customers. Retail stores use such plastic cards for a variety of retail store programs such as loyalty cards, club cards, gift cards, frequent shopper programs, store credits, scrip programs etc. Such plastic cards do not provide two-way real time digital interactive communication capabilities between retailer and customer.